The following financial ratios are based on information from the income trust’s balance sheet, income statement, and statement of cash flows. These statements are issued at the end of each operating quarter and at fiscal year ends. They are legally required to be filed with the provincial securities regulators.

These ratios are a guide to assist in the selection from the approximately 180 income trusts. Criteria other than financial ratios (see full list of investment criteria) are also important, however the financial ratios receive significant attention.

These descriptions of financial ratios as they relate to income trusts are introductory only.

Payout Ratio – AFFO Trailing

Adjusted Funds from Operations (AFFO) is the amount of cash (or near cash) generated by a business, net of costs necessary to sustain productive capacity. AFFO can be retained and used internally to fund growth and share buybacks, or can be distributed to owners. The AFFO trailing payout ratio is the ratio of dividends paid per share to AFFO per share for the immediately preceding 12 month period.

AFFO stands for Adjusted Funds from Operations. This amount is determined by starting with net income (as determined under Generally Accepted Accounting Principles-IFRS), and adjusting for non-cash amounts and amounts related to capital spending. Examples of non-cash amounts are: depreciation, depletion, amortization, unrealized gains or losses on hedging contracts, deferred income taxes and fair value adjustments to assets, liabilities, and shareholder’s equity. Capital spending can be identified as either growth or sustaining. If determined to be sustaining, this is deducted to arrive at AFFO.

Other terms that essentially mean much the same as AFFO are Distributable Cash, Adjusted Operating Net Income and Free Cash flow. AFFO is most meaningful when calculated on a per share basis then compared with dividends per share to determine the AFFO payout ratio.

Payout Ratio – AFFO Forecast

Adjusted Funds from Operations (AFFO) is the amount of cash (or near cash) generated by a business, net of costs necessary to sustain productive capacity. AFFO can be retained and used internally to fund growth and share buybacks, or can be distributed to owners. The AFFO forecast payout ratio is the ratio of dividends paid per share to AFFO per share based on the 12 month forecast AFFO.

AFFO stands for Adjusted Funds from Operations. This amount is determined by starting with net income (as determined under Generally Accepted Accounting Principles- IFRS), and adjusting for non-cash amounts and amounts related to capital spending. Examples of non-cash amounts are: depreciation, depletion, amortization, unrealized gains or losses on hedging contracts, deferred income taxes and fair value adjustments to assets, liabilities, and shareholder’s equity. Capital spending can be identified as either growth or sustaining. If determined to be sustaining this is deducted to arrive at AFFO.

Other terms that essentially mean much the same as AFFO are Distributable Cash, Adjusted Operating Net Income and Free Cash flow. AFFO is most meaningful when calculated on a per share basis then compared with dividends per share to determine the AFFO payout ratio.

Price/AFFO

Ratio of the share price divided by the forecast AFFO per share.

Target Price

This is the 12 month target price as of the date of the most recent research report update.

Last Update

This is the date of the most recent Research Report update.

Debt to Equity Ratio
Identifies if the debt levels of the income trust are reasonable.

Compares the total of long-term debt to the equity. For REITs this ratio is modified to the total of long-term debt as a ratio of equity plus long-term debt. This is done to be consistent with industry practice.

For any business there is limit to the amount of borrowing it can undertake and remain able to repay the debt plus interest. For a business with no debt this ratio will be zero. One with more debt than equity will have a ratio greater than 1. Typically a ratio from “nil” to about 30% is desirable. Real estate and pipeline trusts are generally able to have higher ratios ranging up to 100% due to the long lived nature of their assets.

Market Capitalization to Book Value
Compares the value the “market” places on the income trust to the values recorded on the books.

The comparison of these market value to book value indicates if the market value of the trust is greater or lesser than the amount the trust paid for their assets less the amounts borrowed to buy the assets.

A market value to book value ratio greater than 1 indicates investors are paying a premium for the trust. Normal ratios are typically between 1-2. A ratio less than one may indicate a bargain or a trust at risk of liquidation.

Market values move based on investor expectations about the individual trust’s earnings, the sector in which the trust operates, and the overall economy.

Market value is calculated as total trust units outstanding times the trading price per unit, the result is the total market value of the income trust. The book value is total value paid for assets minus total liabilities. Put another way, book value is the amount invested by the unit holders plus or minus the accumulated earnings/losses of the income trust. This amount is also referred to a net book value, net asset value, net equity, equity or just book value.

ROC (Return of Capital)
When income trusts are distributing more than they earn they usually relying on cash from depreciation or depletion and in essence distributing some of their capital. At some future point this cash is likely going to be needed to replace the core assets. This capital element that trusts distribute is not tax deductible to the trust nor is it immediately taxable to the unit holder. This amount is listed as “Return of Capital” on unitholder tax reporting slips and must be deducted from the price paid for the units if and when the units are sold. When the units are sold the amount is taxable as a capital gain or possibly deductible as a capital loss.

Convertible Debentures
This column shows the amount of convertible debenture debt that a trust carries on their balance sheet. Convertible debentures have a dual personality in that they are not strictly debt or equity. It is important to know if a trust has convertible debentures in their capital structure and how much they carry.

Commencing on October 1/04 trusts will be required to classify convertible debentures as liabilities.

Yield
The column shows the annualized yield based on the “last updated” unit price. Unit prices can and do fluctuate so IncomeTrustResearch.com makes every effort to update unit prices but does not guarantee the accuracy of this information. Users are advised to check current unit prices.

Opinion
IncomeTrustResearch.com uses 5 different ratings. Ratings can and do change as information is available. Notification of ratings changes are made available to subscribers using emailed updates and are upated to the appropriate location on IncomeTrustResearch.com website. IncomeTrustResearch.com does not guarantee the accuracy of ratings and users are advised this is an opinion only subject to the “Terms of Use” of IncomeTrustResearch.com

Descriptions of Opinions

Green Dot – This trust is considered to be of good quality with reasonable security of capital and stability of distribution. Both upside appreciation and downside movement in unit prices are limited. There is a reasonable possibility of moderate increase in distributions, and reductions in distributions are unlikely. Suitable for investors who are willing to accept moderate investment risk.

Yellow Arrow - UP – Indicates that the unit price of this trust is predicted to increase and/or there is potential for increase to distribution payments. This rating is considering to be of increased risk when compared to the “green” rated trusts. Trusts with the rating would be suitable for more aggressive investors.

Yellow Dot - Indicates this trust is currently experiencing increasing uncertainty with regards to the unit price or distribution. The direction of the unit price movement or stability of distribution cannot be determined at this time. Trusts with the rating would be unsuitable for conservative investors.

Yellow Arrow – Down – Indicates that the unit price of this trust is predicted to decline and/or there is potential for a decrease to distribution payments. This rating is considering to be of significantly increasing risk. Trusts with the rating would be unsuitable for conservative investors.

Red Dot – Trusts with this rating should not be owned by the type of investor who requires security of capital or stability of distributions. Risk level is considered to be high.

Produced by H.C. Levant, – Reproduction of this material in part or it’s entirety is subject to copyright licensing agreements and is forbidden except only with the express written consent of the author.